Posts tagged with Budget

A look at how the city got an unexpected $1.4 million and why it will spend it rather than cut taxes

It is like finding a dollar on the sidewalk — except instead of one dollar there are 1.4 million of them. That is kind of the situation the city of Lawrence has found itself in.

When you find a dollar on the sidewalk, you have a decision to make. Do you spend it? Do you save it? Do you give it to charity? Do you try to find its original owner? City Hall budget-makers have found themselves in a similar situation. They essentially have found $1.4 million in unexpected money.

Spoiler alert: City Hall plans to spend it.

What’s the story behind $1.4 million of found money at City Hall? The short answer is a hot real estate market has caused the value of most homes in Lawrence to rise quite a bit in 2017. The city charges you a property tax based off the value of your home. When your home value goes up, so does the amount you pay in property taxes — unless the city reduces its tax rate. The city is not proposing to reduce its tax rate. It is planning to raise it by 1.25 mills, or about $25 per year in new property taxes for a $175,000 home.

That doesn’t really sound like that much, but do remember that the school district is raising its property tax rate to fund improvements to school facilities, the county is now proposing a 1.9 mill increase as it starts spending on mental health care, and some folks are facing an income tax increase from the state. It adds up, and we’ve already written an article about how Lawrence residents are in line for their largest property tax increase in years.

None of this is all that unusual. This will not be the first time that property values go up and government believes it still needs to raise tax rates to fund itself. But here’s the interesting twist: For some reason, City Hall officials were surprised home values went up so much. City Hall budget-makers had put together a recommended budget in May that was based on the property tax base — i.e., the value of real estate in the community — increasing by 2 percent.

After that budget was publicly released, the county appraiser notified the city that the tax base actually had grown by a little more than 6 percent. That one change generated $1,408,000 in additional property tax funds for the 2018 budget, according to figures provided by the city.

But here’s the thing: In May, city officials weren’t planning on spending that $1.4 million because it didn’t know it existed. City officials recommended a budget that didn’t include that money. The amount of money in the May recommended budget was enough to adequately operate the city in 2018, we were told.

But now that the city knows this $1.4 million exists, it plans to spend it. The alternative would be to make a corresponding reduction in the city’s property tax rate. Because of the higher property values, the city can generate all of the money it planned to spend as detailed in the recommended budget released in May, and it won’t need as large of a property tax rate to do it. Could the city eliminate the need for any property tax increase? I’m not sure of that, but it certainly could reduce the 1.25 mill levy increase by a significant degree.

So, why isn’t the city doing so? The city hasn’t been real clear in its thinking on this, but here is what I’ve gathered in talking with Finance Director Bryan Kidney and others. It involves the phrase the NFL referee uses after looking at the replay: upon further review. After the recommended budget was released in May, city staffers took a closer look at some of its spending assumptions. It now believes some things are going to cost more than they expected. A big one is future borrowing. They think they undershot what interest rates are going to be in the future. Some construction costs also may not have been fully accounted for either. Adjust those upward, and suddenly you need some of that $1.4 million in found money. Plus, Kidney wants to give future commissions as much flexibility as possible. Keeping the extra money in the budget does that.

City Manager Tom Markus also told me that it just puts the city in a better position in the long term. All the proposed tax increase is slated to benefit the city's bond and interest fund, which pays for big infrastructure projects. Markus is concerned that fund won't be healthy enough long-term, if the city doesn't start devoting more resources to it.

"It is easy to say 'we can cut that and we can cut that,' when really all that does is push it to the next year," Markus said. "We have done too much of that."

The city also believes some of its other revenue sources aren’t going to be as robust as once thought. A big one is franchise fees, which is a special tax you pay on utility bills for landline phones, cable television, electric and other such services. People don’t buy phone and cable services like they used to, and as a result the city is expecting franchise fees to come in about $240,000 less than expected.

The city also is expressing some concern that sales tax collections aren’t growing as fast as they have in previous years. That is true, but it is debatable what level of immediate concern this should cause the city. The reason I say that is because even though sales taxes aren’t growing as fast as they did in the past two years, they are still growing at about a 3 percent rate. In addition, the city in 2017 is still on track to collect significantly more in sales taxes than what it budgeted to collect. Right now, the city estimates in the general fund it will collect about $700,000 more in sales taxes than what it budgeted to collect. That $700,000 windfall more than covers the decline in franchise fees, and leaves money left over that could be moved to the 2018 budget to help cushion against a slowing of sales tax collections in that year. In addition, the city in 2016 and 2015 also collected more in sales tax revenues than it budgeted to collect.

Markus, though, notes that the city still isn't funding everything it ought to, even with the healthy sales tax collections.

"I don't think we as a city have done a very good job of budgeting expenses for infrastructure," Markus said. "We are good at spending money to build projects, but we haven't set aside money to maintain them."

There are other people, though, who will argue that at some point, those excess collections in sales taxes should lead to a property tax reduction.

I’m not here to argue anything, however. Honestly, I’m not passing judgment on the city’s decisions on how to deal with the $1.4 million in unexpected money. I just want you to know about it. The decisions aren't a done deal. The city doesn't finalize its budget until August.

I also think it is important to keep the matter in perspective. The city’s proposed 1.25 mill increase is the lowest of the three major governing bodies. The school district’s will be more than 2 mills. When voters approved the bond issue in May, it was estimated to be a 2.4 mill increase, but perhaps it will come in less than that. The property tax base in the school district presumably has risen, as well. Theoretically, that could help the district have a lower than expected mill levy, too. We’ll see. The county is proposing a 1.9 mill levy increase and is spending in ways it hasn’t done in the past, primarily on mental health services.

But the city’s situation is odd because of the timing. The city threw a spending number out early in the process. Then the growth in the tax base was discovered, and it found itself with the question of whether to increase its spending plans or reduce its tax rate. All this is done as the city prepares to ask voters in November to renew a set of sales taxes totaling 0.55 percent for another 10 years. That plan already is drawing opposition. As it stands now, voters will get their largest property tax increase in years when bills come out in late November. We’ll see whether that is on their minds when they go to the polls in early November to vote on the sales tax question.

The stakes with that issue make the $1.4 million look small. If voters reject the sales taxes, that puts about a $120 million hole in the next 10 years worth of city budgets.

Reply 13 comments from David Holroyd Richard Heckler Steve Vukelich Clara Westphal Carol Bowen Brandon Devlin

Are city commissioners breaking a political promise on street maintenance?

Let’s get in the time machine and set the dial to 2008. No, I’m not looking to relive the decision about a Mario Chalmers tribute tattoo or other such common KU National Championship celebration issues. Something else happened that year: Voters went to the polls to approve a new sales tax for infrastructure projects. Just like the tattoo, there are questions that linger from that vote.

As the headline implies, I believe there is a question about whether city commissioners are breaking a political promise about how they’re using that sales tax money and paying for street maintenance.

That question has come up from time to time, but has been renewed by the City Commission’s recent discussion of a five-year capital improvement plan. As proposed, that plan calls for the city to spend $3.14 million in 2017 for its contracted street maintenance program. It also calls for that same annual funding level for the life of the five-year plan.

What’s interesting is that in 2008 — before voters approved the 0.3 percent sales tax for infrastructure — the city approved $4.83 million in spending for contracted street maintenance.

Before we get too deep into the weeds here, a quick word about the city’s contracted street maintenance program. It is the program that seals the cracks in streets, puts a new coat of pavement on sections of streets, repairs portions of curbs and gutters and other such maintenance issues.

Don Lassen with Sunflower Paving Inc. puts some finishing touches on curbing on 22nd Street near the intersection with Vermont Street, Friday, July 19, 2013.

Don Lassen with Sunflower Paving Inc. puts some finishing touches on curbing on 22nd Street near the intersection with Vermont Street, Friday, July 19, 2013. by Mike Yoder

Engineers deem this program critical. I’ve frequently heard it is just like caring for your house. You have to do the mundane maintenance in order to avoid or delay the really big, expensive rebuilding projects. Simply put, the city is spending less money on those type of projects than what they were before voters approved millions of dollars in new sales tax funds for streets.

Here’s where we get into the weeds a little bit: Overall, the city certainly is spending more money on streets now than it did prior to the sales tax vote. It darn sure better be. The sales tax in 2015 alone provided almost $5 million for infrastructure projects.

But, as I’ve already noted, there are different types of street spending. There is spending on street maintenance and there is spending on rebuilding streets. The city has been spending more money on the high-profile street rebuilding projects — think Kasold Drive, think Iowa Street — but has been spending less on the more mundane street maintenance projects.

Does that, however, mean city commissioners are breaking a political promise? Well, some pretty specific things were said during the campaign to convince voters to approve this sales tax. I covered that campaign, and remember pretty well the environment we were in. A key talking point was that the city hadn’t spent enough money on street maintenance historically, and as a result we had lots of streets that needed to be rebuilt. We were behind the curve. The last thing politicians were telling voters is that they were going to spend less money on street maintenance.

Just to reconfirm my memory, I looked for a written statement on the subject. I went back to the documents from the City Commission’s Aug. 5, 2008, meeting, when commissioners agreed to put the sales tax issue on the ballot. There is a memo that explains how the infrastructure sales tax would be used. A reminder: It is used for more than just streets. The Burroughs Creek Trail received sales tax money, firetrucks have been purchased with it, a major drainage project in North Lawrence is being funded by the tax.

Mary Beth Rader, Topeka, seated, cheers on her sister, Jennifer Urton, Waverly, as Urton competes in the 10K race of the Kansas Half Marathon along the Burroughs Creek Trail on Sunday, April 17, 2011.

Mary Beth Rader, Topeka, seated, cheers on her sister, Jennifer Urton, Waverly, as Urton competes in the 10K race of the Kansas Half Marathon along the Burroughs Creek Trail on Sunday, April 17, 2011. by John Young

The memo explains all that, and then includes a paragraph that addresses a key point of philosophy: “Remaining funding is anticipated to provide new funds for street and storm water infrastructure which would enhance rather than supplant existing general fund, gas tax or storm water funding for these infrastructure projects.” Yes, city memo language can be a cure for insomnia. But let me translate for you: The key phrase is “enhance rather than supplant.” In other words, we are going to keep spending all that we spend today on streets, and this sales tax money will be new money that we’ll add on top of it. That sentiment was expressed many times on the campaign trail.

But that is not what is being proposed, and it is not what has happened the past few years. I’ve already told you the city’s contracted street maintenance fund is scheduled to receive $1.69 million less in funding in 2017 than it did in 2008 before the sales tax was approved.

But let’s take a look at the specifics. The street maintenance fund gets money from a variety of city sources.

— In 2017, it is proposed to get $2 million from the general fund, which is primarily property taxes. In 2008, it received at least $2.1 million in general fund dollars. (I think it is closer to $2.55 million, but the records are little difficult to understand on that point.)

— In 2017, it is proposed to receive $140,000 in storm water funds, which comes from a special fee on your utility bill. In 2008, it received $540,000 in storm water funds.

— In 2017, it is proposed to receive $200,000 in gas tax funds, which comes from a state-imposed tax on gasoline. In 2008, it received $690,000 in gas tax funds.

— In 2008, the street maintenance fund also received $850,000 from the countywide 1-cent sales tax, which is a different sales tax from the infrastructure sales tax approved by voters in 2008. As proposed for 2017, the street maintenance fund will receive no countywide sales tax dollars. Much of the countywide sales tax dollars that the city had available to it have now been committed to paying for Rock Chalk Park.

It is important to note that the city is proposing to use $800,000 in infrastructure sales tax money for the street maintenance fund. That is money that wasn’t available in 2008. But, as you can see, the city has reduced funding from other sources by an amount much greater than $800,000. Basically, for every new dollar the city has put into the fund, it has taken two old dollars out.

If you think this is something the new city manager has come up with, you are incorrect. The city started doing this well before Tom Markus arrived earlier this year. We reported last year that the 2015 contracted street maintenance budget had dropped to $2.8 million after city officials took money from the fund for other purposes.

So, are city commissioners breaking a political promise when it comes to streets? Honestly, I’m not that interested in answering the question. The answer will be subjective, and won’t have much bearing on what happens in the future. It certainly appears that street maintenance funding is different from what voters were told in 2008, but a lot of things have changed since 2008. The city has had financial issues it has had to address. The truth is, the folks who campaigned in 2008 for the sales tax had no way of promising what future city commissions would do with future budgets. That’s why when it comes to promises, there are many I would prefer rather than political ones.

What happens going forward, though, is important. City engineers say they ought to be spending about $6 million a year in contracted street maintenance to stay ahead of the curve. Whether that number is entirely accurate is probably debatable too.

But it seems there is a reasonable question to ask at City Hall these days: Is the city going to fall behind on street maintenance again? If the answer is yes, you need to answer another question: What city spending are you going to cut, or what taxes are you going to raise?

Don’t ask me. I think it may be easier to figure out the tattoo.

Reply 9 comments from Matt Beat Notwhatyouthink2 Richard Heckler Darin Wade Bill Turner Michael Kort Richard Andrade David Holroyd

Spending outpaces revenues for key City Hall fund in 2015, and is projected to do so in 2016; city’s hotel tax sees big growth

Unlike in Topeka, there have not been late-night meetings, tossing the legislative couch cushions for loose change, manipulation of voodoo dolls or other such generally accepted state governmental accounting practices going on at Lawrence City Hall. Nonetheless, there is some interesting City Hall budget news to report: There was some deficit spending that occurred at City Hall in 2015.

According to preliminary numbers, Lawrence spent nearly $220,000 more than it received in revenue for its general fund in 2015. The general fund is the main account the city uses to fund a majority of public services — everything from police and fire service to administrative services. What’s more significant is that the city is projected to spend about $890,000 more than it receives in revenue in 2016, according to the latest report.

So, what does that mean? How does the city spend more money than it receives? Easy. You and I keep cash in our freezers to use in emergencies and for unexpectedly good deals on leftover Easter candy. Well, the city has a really big freezer. It has something called a “fund balance,” which is basically just an accumulation of unspent money from prior years. (Evidently, the city doesn’t donate plasma to build its fund. Daddy gets mighty woozy during candy clearance season.)

The city’s fund balance account for its general fund was $12.9 million at the beginning of 2015. By dipping into it a bit, the amount fell to $12.7 million at the end of the year.

But as I previously mentioned, more interesting are the current projections for 2016. The city’s finance department is projecting the city will partake in deficit spending to the tune of $891,000 in 2016. That will cause the general fund balance to drop to $11.8 million. That is a significant drop because the city’s general fund balance would then amount to 14.8 percent of the city’s annual general fund expenditures. The city has a budget policy that says the fund balance shouldn’t fall below the 15 percent level. The policy notes that the city relies heavily on sales tax revenue, which can be volatile, so the policy aims to ensure the city has an adequate hedge against a downturn at all times.

It will be interesting to see how city commissioners craft their 2017 budget, and whether they make any midyear adjustments in 2016. The budget process for 2017 officially begins Tuesday with a City Hall study session on the budget. The city will pass a 2017 budget by August. This should be one of the more interesting budget sessions in quite some time at City Hall. (That’s kind of like saying prepare to watch a really good game of Monopoly, but still . . . ) This will be the first year in the 20 some years I’ve covered City Hall that we might see a major change in budgeting philosophy. New City Manager Tom Markus may have different ideas about how to craft budgets, different ideas on appropriate fund balances and different ideas on spending decisions. Of course, ultimately it will be city commissioners who make the final decisions, but they pay a city manager to give them guidance on such important matters.

The issue of how much Lawrence ought to keep in reserve may be one to keep a particular eye on. There certainly have been arguments on both sides of that issue. Some have said Lawrence has kept too much in reserve, while others have argued those reserve amounts have helped the city keep an excellent credit rating.

Spending more than it receives in a year isn't unheard of by the city, but it doesn't happen frequently. I believe the last time the situation existed in the city's general fund was 2011, and I don't think at any point in the last decade has the city done two years in a row of deficit spending.

City Hall reporter Nikki Wentling will be covering the budget process extensively this summer, and I’ll be chiming in periodically, in between plasma runs. In the meantime, here’s a look at some budget numbers from the city’s most recent report.

Note: All numbers for 2015 are preliminary, which means they haven’t been audited yet and may be subject to slight changes. (That’s what “preliminary” means at City Hall. I just wanted to clarify because it seems to mean something different at the Statehouse.)

— In 2015, the city received $76.1 million in general fund revenue, up $2.5 million or a 3.3 percent increase Expenses, though, increased by $3 million, or an increase of 4 percent. In case you are wondering, inflation — as measured by the Consumer Price Index — was less than 1 percent in 2015, but City Hall leaders would point out that the type of expenses government has and a consumer has are different. In other words, governmental inflation is probably something different from consumer inflation.

— Sales tax collections in the city increased by $1.3 million or 3.7 percent in 2015. Sales tax collections made up 47 percent of the city’s total general fund budget in 2015.

— Property tax collections in the city increased by $1.3 million or 8.3 percent in 2015. Property tax collections made up 22 percent of the city’s general fund budget.

— Franchise fees, which are a special tax that utilities pay for the use of city right-of-ways and such, dropped significantly in 2015. Total franchise fee revenue dropped $500,000 or 6.5 percent. Franchise fees made up about 9 percent of the city’s general fund budget. A mild winter caused franchise fees for natural gas to drop by about $200,000, as less gas sold means fewer franchise fees for the city. The amount of franchise fees the city collected from land-line telephones also plummeted by about $200,000.

— The idea of attracting more people to Lawrence hotels through Rock Chalk Park, new hotel construction, and other ventures does appear to be paying off. The city’s guest tax fund collected $1.6 million in 2015, which was an increase of 45 percent compared with 2014 totals. The guest tax fund now has a $1 million fund balance. It will be interesting to see how the city treats that new money. Will it continue to invest guest tax dollars only into tourism-related activities, or will it try to use that newfound money as a way to offset some weakness in the general fund?

— One other fund that is showing some weakness is the city’s recreation fund, which runs the recreation centers, classes and other types of activities. The fund had a great year in collecting fees from users — fee revenue grew by 17 percent. But expenses also grew. The fund spent about $110,000 more than it received in revenues in 2015. That marked at least the second year in a row that fund has had deficit spending. The fund, however, still has about $900,000 in reserve.

— The city’s water and wastewater fund — the department that runs the city water and sewer service — had a good year. Revenues for that fund, which has benefited from higher water and sewer rates, were up 5.5 percent. The fund received about $1.5 million more in revenue than it had in expenses in 2015. The fund has a very large fund balance of $22.3 million, in part because the water and sewer system is preparing for some major expenditures. Remember that a new sewage treatment plant is being built south of the Wakarusa River, and the city believes it has significant work to do to upgrade other water and sewer infrastructure.

— The city’s trash service also had a good year. Revenues grew by 3.4 percent, and the division had revenues that exceeded expenses by about $385,000.

— The city’s golf course did not have such a good year. Revenue at the city-owned Eagle Bend Golf Course fell by about 5.5 percent in 2015. The golf course also cut expenditures to try to match revenues, but ended up having expenses exceed revenues by about $32,000. The golf fund, though, still has about $200,000 in reserve.

Commissioners will begin discussing all things budget-related at a study session at 3 p.m. Tuesday at City Hall.

Reply 1 comment from Michael Kort

Lawrence retail sales still up for the year, but latest report raises questions of a slowdown

You’ll have to decide whether you are in a glass-half-full or a glass-half-empty mood today. A new report from Lawrence City Hall on the city’s retail marketplace could leave you feeling either way.

First, the good news: Retail sales are still tracking above 2012 totals. Retail sales tax collections are up nearly 1.7 percent compared to the same time last year.

This month’s report tracks sales made through mid-May. Through that time period, taxable sales in the city have totaled about $677 million, up from about $666 million during the same time in 2012.

That’s good news, especially given that 2012 was a stellar year. Retail sales totals in 2012 grew by more than 5 percent, which was the largest percentage gain since 1998. So, the fact that retail sales are going above and beyond those totals is significant.

As for the glass-half-empty part, the report does have some numbers that likely will catch the eyes of City Hall budget makers. Sales tax collections for the latest collection period, mid-April to mid-May, were down by about 2 percent. A one-month decline isn’t cause for much concern, but this is the second month in a row that retail sales have declined. That makes next month’s report one to watch because three consecutive months of declines could be considered a trend.

The larger issue, though, is the city is now at the halfway point for its sales tax collections in 2013. (In case you are wondering, the city receives a check from the state once per month, and it recently received its June check. Because of lag time in collections, the June check only represents sales made through late May. Now you can amaze your friends at parties this weekend with the inner workings of the state’s sales tax collection system.) At the halfway point, sales tax collections are running below the city’s budget projections.

Thus far, collections are only down by about 0.2 percent compared to the budget. One good month will wipe out that shortfall. But the question, of course, is whether something has changed in the economy that will cause good months to be fewer and farther in between. The city is now projecting one scenario where sales tax collections would come in about 1 percent under budget, which would create about a $260,000 shortfall in the city’s budget.

It also would get the city’s 2014 budget started off on a bad foot. City Manager David Corliss’ 2014 recommended budget, which was released yesterday, projects sales tax revenues to grow by 2 percent over the amount the city budgeted to collect in 2013. So, if the 2013 collections come in less than budgeted, then sales tax collections in 2014 will have to grow by even more than 2 percent to meet budget.

None of this is new. Projecting sales tax collections is always a difficult part of the budget process. And if it makes you feel any better, cities all over the state are struggling with the issue too. Retail sales numbers are all over the board. Here’s a look at some of the larger retail markets in the state:

• Emporia: up 2 percent

• Hays: Down 3.1 percent

• Kansas City: Up 5.2 percent

• Manhattan: Down 3 percent

• Ottawa: Up 5.1 percent

• Overland Park: Up 2.2 percent

• Olathe: Up 2 percent

• Shawnee: Up 4 percent

• Topeka: no change from the prior year

So, what does all this mean? Is the glass half full or half empty? I don’t know. But, of course, I have a certain policy about glasses, a certain beverage and this heat. I take no chances. I keep a glass in each hand — one half full and the other half empty.

Reply 3 comments from Frankie8 David Holroyd